Data Dictionary (General Insurance terms)

Insurance Risk Pricing

• Exposure = Risk on a scale between 0-1

  • Take into account the period you are exposed to the risk for example

    • Travel may only be for a few weeks

    • Motor on a rolling 12 month period contract

    • Pet on a rolling 12 month period contract

    • Gadget on a rolling 12 month period contract

    • Property is a longer exposure with high exposure given the factors with higher losses than most other claims in most cases

• Claim Frequency = Claim Count / Exposure

• Claim Severity = Claim Cost / Claim Count

• Loss Cost = Claim Frequency x Claim Severity

• Response Variable — We are going to use ‘Claim Cost’ as a response variable keeping ‘exposure’ as an offset which is a suggested approach for modelling rates and averages.